asia up, australia down, $a up, page-7

Hi snuff,

It would not be so bad, but for the A$ rising hard against most other currencies out there.

Sure enough, the rise against the US$ has been the most pronounced, but there is now almost no currency in the World where the A$ has not risen by 10-15%+ since 1 January 2002 (including against many of the Asian currencies by >20%).

Since 1 January 2003, the TWI (which is our surrogate all-currencies bellwether) has risen from 51.7 to 64.4.

That's a rise of 25% in 12 months.

Within the TWI structure, the following component currency values currently apply (to 1 decimal value):
1)
JPY = 18.7
2)
US$ = 17.0
3)
EURO = 13.0
4)
South Korean WON = 6.3
5)
NZ$ = 5.8
6)
Chinese RENMINBI = 5.7
7)
UK POUND STERLING = 5.3
8)
New Taiwan dollar = 4.3
9)
Singapore dollar = 3.9
10)
Indonesian rupiah = 3.5
11)
HK$ = 3.2
12)
Malaysian RINGGIT = 2.8
13)
Thai BAHT = 1.8
14)
Canadian dollar (c$) = 1.7
15)
Indian RUPEE = 1.6
16)
Swiss FRANC (CHF) = 1.3
17)
PNG KINA = 1.2
18)
Swedish krona = 1.1
19)
South African RAND = 1.0
20)
Philippine PESO = 1.0

What, however, is the myth that the A$'s rise is only being marked against the Greenback.

In fact, on a TWI basis, the A$ has only risen marginally less in value against the basket of trading currencies compared to the extent of its rise against the US$.

That's the problem, the A$ risks pricing Australia out of the global market, not just out of the US$ denomiated marke.

Now, just one further point:
If import prices are truly falling against the rising A$, then why is it that our petrol prices remain broadly fixed in the high 80s low 90s, and why the prices of CDs, books, DVDs, etc have all broadly been immune to the rising fortunes of the A$?

The RBA may well be right in suggesting that a rising A$ translates to lower landed import prices, but what they forgot to take into account was the following:
1)
domestic margin and price re-flation;
2)
Australian prices set independently of their US$ (etc) value and not reflecting changes in FX movements;
3)
the 4-9 month delay factor involved in filtering the effect of new prices through the system;
4)
the growing middleman factor in Australia which adds to the domestic weighted cost; and
5)
multi-nationals using a flexible, "bare" transfer pricing mechanism to ensure that profit margins move in a natural hedge to currency movements - a higher transfer price with minimal flexible, discretionary domestic add-ons in the face of a falling A$ and a lower transfer price with maximum flexible, discretionary domestic add-ons in the face of a rising A$. Call it "market contribution" if you like.